LAURA FOULDS

“You have to declare your worldwide income”

There are several ways to cut your tax bill in Luxembourg. Laura Foulds, managing director of Analie Tax & Consulting, which specialises in expat and personal tax advice, shared these tips.

What can you deduct from your personal taxes here? In Luxembourg, the main deductions that you can reclaim are mortgage interest, if you own the house that you live in here.

The maximum deduction for mortgage interest is €2,000 per person in your household. Interest on private debt like student or car loans, and life, death, disability, third-party liability and medical insurance can also be claimed up to €672 per member of a household. But it’s €672 altogether, not by type of insurance or loan, correct? It’s not per type. This is one combined deduction. So if somebody has a car loan and medical insurance, maybe they’re already at the limit. Then there are private pensions. This is €3,200 per year; both spouses can deduct this.

What are some common tax declaration mistakes? What is really, really important in Luxembourg is you have to declare your worldwide income. So if you have a rental property in Greece, or you have investment income in Spain, you have to declare it in Luxembourg. And this is what a lot of people forget to do.

Is that just to calculate what tax band you go into? You have to look at the different types of income. Normally something like interest will be taxable here in Luxembourg, because it’s the country of residence, whereas the rental income is taxed where the property is situated. And then, Luxembourg is just using that information to work out the tax rate to apply to your income. But you have to be very careful. You have to look at the different types of income and the tax treaty that exists between the countries you’re looking at, because some of them have different terms.

Because you might get a tax deduction from the other country? Yes. For example, bank interest is normally taxable in your country of residence. However, the treaty with Poland says Poland can tax it, but only up to 10%, and Luxembourg must give a credit for the 10%.

So it can be very specific? It can be very specific.... but in the majority of treaties: interest, country of residence; rental, country where the property is situated; dividends, generally split, actually. What other advice would you give to expats about the Luxembourg tax system?

Where we get a lot of questions is tax class and what tax class applies to them. And, if they’re both working and they have tax taken from salary, why do they still owe at the end of the year? So understanding the system is really key for expats.

You’re talking about married couples?

Is it not always beneficial to do a joint filing if you’re both working?

I would say that in 98% of cases, the joint filing is still beneficial. There are situations when an individual filing can be better, but you have to work a little to find those situations. Joint filing is normally still the most beneficial solution. What people have to understand is that what they pay through payroll is not the final tax.

So if you’re married, is the withholding a little bit lower? It’s just not enough. This is how the system is designed, that withholding is not enough. And therefore you owe at the end of the year. When you’re new to Luxembourg, and if you’ve come from a country like the UK, for example, where the withholding is accurate almost to the penny, it’s really a surprise to have this huge bill at the end of the year.

Laura Foulds founded Analie Tax & Consulting in 2013.